Confess your sins – Company directors can receive absolution too!

Imagine you have a client who comes to you knowing the day of reckoning is drawing near. No, you haven’t switched career and joined the priesthood; your client has an insolvent company and he knows he has done things he really shouldn’t have.

Quite understandably the client is worried. The appointment of an Administrator or Liquidator appears to be a foregone conclusion and both have a statutory duty to investigate directors’ actions. At the very least your client is facing disqualification as a director with the potential of fines and civil actions too.

But is there a third way? A means of dealing with the corporate insolvency whilst avoiding any investigation into a director’s actions.

Well yes, and now we reach the proverbial confessional booth.

A Company Voluntary Arrangement, (“CVA”), is a remarkably flexible tool which we at Gibson Hewitt have used for this very purpose. In essence it is a means of striking a deal with creditors by offering them a better return than they would receive via a liquidation. What’s more, a CVA Supervisor has no statutory duty to investigate the director’s actions and report to the Secretary of State.

Whilst seeing a director disqualified might give creditors a small sense of satisfaction, these creditors are ultimately in business to make money. What really motivates creditors is a commercially acceptable return on their debts.

A CVA should not be misconstrued as a means of hiding past misdemeanours. If a director “makes a false representation” or “fraudulently does, or omits to do anything” for the purposes of obtaining creditors’ approval of a CVA he is in trouble. That act becomes a criminal offence leaving him liable to a fine and/or imprisonment. It is therefore vital that the CVA proposal, (which we will help him prepare), gives a full and honest disclosure of what he has done and what actions a liquidator might bring against him.

The key is to make that CVA proposal sufficiently appealing in commercial terms for the requisite majority of creditors to vote accept. Gibson Hewitt have dealt with such CVA proposals in the past where, following the payment of a dividend to creditors, the remainder of the debt is written off. The company is then left as a non-trading shell which can simply be dissolved at Companies House.